The Next Craft Boom?

Small Batch Distilling is Making a Splash in the Midwest

By John Garland

Photos by Ariel Lamb

It’s hard to overstatethe impact of the “Surly Bill” on the craft beer industry in Minnesota. Besides legislative legitimacy, the bill was designed to give new small businesses a cash flow, allowing them to create a worthwhile headquarters to interact with consumers, while fostering community around their brand.

This legislation was among multiple amendments grouped into 2011’s liquor omnibus bill; however, the excitement over the prospect of brewery taprooms served to obscure some of the bill’s other provisions. One such provision has quietly set the stage for another, similar craft industry to develop—an amendment defining what it means to be a “microdistillery” in Minnesota.

Legally defined, a microdistillery produces no more than 40,000 gallons of 100-proof spirit annually; more importantly, the Surly Bill legislation reduced the annual distiller’s license fee for small operations from $30,000 to just over $1,000. The original $30,000 fee proved cost-prohibitive for all but the biggest distilleries, like the Phillips Distilling Company of St. Paul. The state’s foremost liquor manufacturer since Prohibition and maker of both UV and Prairie Vodkas, Phillips has a prodigious output of rail spirits and was able to afford the fee.

Now, thanks to the cheaper license, a handful of distillers are laying the groundwork for what they hope will be a growing small-batch spirit culture in the state. Minnesota has so far licensed one microdistillery—Panther Distillery of Osakis—and three or four more are likely to be operational by year’s end.

45 Parallel – Still // Photo by Ariel Lamb

States like Washington and Wisconsin, which enacted legislation on spirits years ago, now have significant industries to show for their efforts. Oregon changed their statutes in 2008, and now has 46 distilleries, which generated $53 million altogether (12% of the state’s total liquor sales) in 2011.

A metro area that often invites comparison to the Twin Cities, Portland is an especially good model of what a well-developed local spirits culture looks like. The city boasts “distillery row” in its southeastern Industrial District with tours and press coordinated between the city’s craft spirit makers. Portland and its distilleries make a formidable economic pair, considering the city’s well-known brewing prowess.

The manufacturing of spirits is also remarkably similar to brewing, in that brewing is half the work. In the process, a distiller concentrates fermented liquid, often called “the beer,” which is made the same way as beer, with many of the same grains and malt (though a distiller’s beer does not contain hops).

“To make a good whiskey, you’ve got to have a good beer,” says Bob McManus, who is working to have bottles of the stuff from his newly formed Mill City Distilling Company on shelves by Labor Day. He plans to craft a whiskey using Minnesota 13, an heirloom corn variety Minnesotans once used to create high-quality moonshine during Prohibition.

A popular product for this young industry looks to be young whiskey. White whiskey (which is clear since it is not aged in oak barrels) is a flagship product of both Panther Distillery and the soon-to-be established Loon Liquors of Northfield. The latter plans to debut a fully organic, birch charcoal-filtered white whiskey called Loonshine in early summer.

Local microdistillers are hotly anticipating a few more legislative changes that may prove essential to sustaining their industry. Currently, Minnesota distilleries are prohibited from sampling their product or holding retail sales on site—the same two factors craft beer can thank for its popularity.

“Right now, the way the laws are, you’ll have four to five [micro] distilleries [in Minnesota] in the next five years,” says Paul Werni, owner of 45th Parallel Spirits in New Richmond, Wisconsin. “If you allow them to sample, and to sell on site, it’ll probably be a dozen.”

Wisconsin experienced an immediate boom in distilling activity once those changes were made, and Werni is quick to point out why selling on site is so important to their business. “It’s a third of my revenue,” he says, “It’s the difference between making money and not making money, or hiring employees and not hiring.”

Minnesota is home to an abundance of quality grains, the largest privately-owned malting facility, two oak-barrel cooperages, and a clued-up populace eager to consume farm-direct products.

It’s likely that 45th Parallel would have opened in Minnesota had it not been for the difference in licensing fees at the time. Should the sampling and retail statutes change, Werni hinted that they would like to open another distillery in Minneapolis.

The on-site sampling and sales regulations appear to be some of the last major pieces of resistance in a state perfect for distilling activity: Minnesota is home to an abundance of quality grains, the largest privately-owned malting facility, two oak-barrel cooperages, and a clued-up populace eager to consume farm-direct products.

Spirits are essentially an agricultural enterprise—call it grain-to-glass. “If you know your distiller, it’s like knowing your farmer,” says Mark Schiller of Loon Liquors. “And we’ll tell you who our farmers are. To show the chain of supply, to have that transparency helps people learn about our product.” There are even rumblings of a rye farmer in the northwest part of the state seeking to distill his own harvest.

Changes to the landscape of local spirits are not without opposition. Certain liquor stores remain weary about the chunk of sales that distilleries might stand to assume. Larger distributors may also choose to give local spirits less support, to focus instead on promoting rail liquors and national brands is certainly more attractive in terms of volume and margin.

“Some distributors are better than others, but they’re not going out of their way to let consumers try these products,” says Ryan Widuch of Elevated Beer Wine & Spirits, a South Minneapolis retailer. But he believes stores like his can use these circumstances as an opportunity to teach consumers about little-known products. “For us to be an educational resource is huge,” says Elevated’s Tom Boland. “We think it’s one in the same with good service.”

“Bars that are smaller, like ours, are where the microdistillery thing lives and breathes.” -Derek Snyder

Bar owners, like distributors, must also confront the issue of selling on margin versus distinguishing their business. “You’re going to make a lot more money [selling rail alcohol], but the experience isn’t there,” says Derek Snyder, owner of Lake Avenue Restaurant & Bar in Duluth. He’s committed to stocking his bar with as much American-made spirits as possible, currently about 70-80 percent of his stock, but understands why that model isn’t feasible for everyone.

“Not all bars have time to do this,” Snyder says. “Why would someone waste time picking up 45th Parallel if they have to explain it to someone, when they could use that time to make 15 drinks and $15 in tips? Bars that are smaller, like ours, are where the microdistillery thing lives and breathes.” This is why Minnesota’s spirit makers are already reaching out to local tastemakers. Both McManus and Simeon Rossi of Loon Liquors accompanied the Northstar Bartenders’ Guild on a recent field trip to Death’s Door Spirits in Middleton, Wisconsin. There they were able to ask the Guild’s standout cocktail makers what products they would be excited to work with. Because small batch sizes give them the flexibility to craft very specific products, Loon Liquors takes suggestions from its constituency very seriously.

45 Parallel Barrels // Photo by Ariel Lamb

Sampling and retail sales at Minnesota distilleries may not be far off. Amendments to address both of these issues, as well as allowing on-sale cocktail service at a distillery, were proposed to the Minnesota Senate Commerce Committee in February of this year. Local spirit-makers see these measures as essential because it gives them better control over how their product is received in the marketplace.

That’s especially important for those companies making spirits like white whiskey, which are largely unknown by the general public. Distillery tasting rooms would offer consumers a chance to taste a spirit, while the manufacturer explains directly to them not only what the flavors are, but also how they are created using specific ingredients or techniques.

It’s no surprise that a state whose blue laws still restrict Sunday sales would be hesitant to officially sanction distillation, an activity that, until recently, has carried an unsavory reputation. But it’s moonshine no more—and the increase in distilleries in Wisconsin and Iowa put the writing on the wall. All signs now indicate a positive trend for a state with all the right resources, talent, and consumers to make craft distilling a signature industry.

John Garland also writes about beer, wine and spirits for the Heavy Table